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Gold futures prices posted month-on-month declines in October, November and December 2012.

Even as prices stabilize, the precious metal may not do much -- for a while.

With all of the questions about the debt ceiling and the government budget, gold is likely to “range trade for the first quarter of this year,” said Chuck Butler, president of EverBank World Markets.

“Once the landscape for those things can be laid out, the market will then have a clear direction,” he said. “That direction most likely will include kicking the can down the road for the U.S., which would potentially drive the dollar down further, which would be good for gold.”

“With gold consolidating or going ‘sideways’ for the year, there was not much excitement in the gold market and therefore less buying,” said David Morgan, publisher of investment newsletter The Morgan Report.

As 2012 neared its end, there weren’t quite as many forecasts for record prices in the new year as the market had become accustomed to over gold’s bull run, which just marked its 12th year of gains.

Dulled appeal

The metal’s performance disappointed investors who were used to phenomenal gains, like the nearly 30% jump in 2010.

There isn’t much doubt that gold is a safe-haven asset, said Steven Feldman, co-founder and chief executive officer at institutional precious-metals provider Gold Bullion International.

But there are some concerns among investors because of the metal’s negative correlation to the U.S. dollar, he said, raising the question of “How can it be safe if it moves against the ‘safe haven’ currency?”

Indeed, the dollar was to blame for some of gold’s lost appeal.

While the dollar “is no paragon of virtue itself, it’s still regarded as better than the euro, the yen or the [British] pound,” said Brien Lundin, editor of Gold Newsletter. Given that, the greenback will tend to remain strong relative to other currencies, “and this comparative strength fools investors into believing the dollar is in good shape.”

Actually, the dollar is in “dire shape relative to historical benchmarks of national debt, economic growth and monetary policy and thus its relative value pales in comparison to that of gold,” he said.

The market still needs some convincing.

Getty Images

Gold bars with a combined value of more than $2 million.

“Financial markets have been generally improving for almost three years and so the need for gold is being questioned,” said Vedant Mimani, lead portfolio manager of the Atyant Capital Global Opportunities Fund. Gold has also been trading sideways for more than a year and a half and “sideways markets don’t attract followers.” Read Howard Gold’s No-Nonsense Investing: Has gold lost its Midas touch for good?

Besides that, gold’s run leading to a record intraday high above $1,900 in September of 2011 doesn’t actually show the “behavior of a ‘safe’ asset,” said James Stanley, a trading instructor for DailyFX.

During the dot-com days, the metal held its price between $250 and $400 but when rates went extremely cheap to try to revive the economy, gold started to move, he said, and didn’t really stop until the record high was set.

“That’s rock-star like performance that is great for taking on risk in a portfolio ... but for holding the ‘safety’ of funds, there are some very clear risks brought into the equation,” said Stanley.

Taking a break

Investors have watched gold fail at attempts to reach fresh record levels.

And as investors saw their holdings fall in value, some of them moved money into other commodities such as base metals and oil, and some moved money into equities, said Sameer Samana, international strategist at Wells Fargo Advisors.

And while investors still view gold as a safe haven, market “volatility has been low and the need for a safe haven has diminished,” he said.

Diminished maybe, but not disappeared.

“Gold remains one of the best long-term safe-haven investments for the risk averse investor despite some declines in price at the end of 2012,” said David Beahm, vice president at precious-metals investment firm Blanchard & Co. “With as much uncertainty as there is today, and with quantitative easing and fiscal stimulus programs providing only a temporary fix, gold is poised to achieve new highs, somewhere north of $2,000 in the coming year.”

For this year, “volatility will be a major component of the markets” and that includes gold, “but counter-intuitive price swings to the downside should be viewed as buying opportunities as the market moves back upward over time,” he said.

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